One of the most critical life skills one needs to learn at a young age is the ability to be financially literate. Growing up, most of your important life decisions will revolve around making economically wise decisions: buying a house to building a good credit score, when to or not to apply for loans, or simply how to invest to make yourself financially free in the long term.
What is financial literacy?
Financial literacy, in simple terms, means one’s ability to be able to make wise decisions with money and other valuable resources (assets). This is an important life skill as it will enable you to live comfortably with the right financial decisions. Financial literacy can stem from simple planning such as a weekly budget plan or a school allowance matrix to help you keep track of your spending. Knowing basic financial planning at a young age will make it easier for you to transition to bigger financial decisions such as getting into Forex, the famous cryptocurrency, and real estate investments.
How do you teach children to be financially literate?
Taking an interest in becoming financially literate at a young age is a good start in building a bright future for your finances. Financial literacy is a learning curb. For example, successful forex brokers probably had to religiously learn how things work from the very basics by attending forex lectures. Similarly, you have to make it easy yet realistic for your children to learn the basics of finances.
1. Teach your children the basics of the value of money
Children have the impression that their parents can provide them with anything they want. But that’s often not the case. Teaching your children the value of money is a good start in introducing them to how acquiring goods works. Talk about how there is a limit on how much you can acquire something. The best age to teach your child the concepts of value and money can be as young as three years old.
2. Do not spoil them too much
Spoiling your child on what they want may give them a false sense of security and false ideas of what wants and needs are. The goal is for children to realize what their priorities should be when it comes to buying goods. People who do not know the concept of what classifies as a “want” and “need” often have difficulties in making financially wise decisions. This leads to them going broke at an unreasonably fast rate.
It helps to teach them delayed gratification. If there is something they need but is something outside their budget, teach them ways to earn money to afford it. It teaches them which to prioritize in the long term.
3. Implement a budget for them to follow
When your child is older, maybe at an age where they’re already in grade school, it is a good time for them to be introduced to budgeting. Give them a certain amount of money and challenge them to make that money fit for a day, a week, or even months. You may also split the money up into categories such as food, commute, school supplies, and savings. The more they get used to sticking into a spending range, the more they will be inclined to find cheaper alternatives or save money to buy something they cannot afford yet.
4. Do not be tyrannical toward your kids’ spending
A vital tip to remember when educating kids about finances is not to be too harsh on them. While money is sensitive and essential, the goal is for kids to build a healthy relationship with finance and financial habits. Too much of everything can easily sway someone off into an unhealthy relationship with money.
For example, being too strict on your child’s spending habits below reasonable means can make them develop an unhealthy relationship with money as they grow older. They may end up splurging their money on wants more because they never got to experience that in their childhood, or one might end up being too frugal that it makes them unable to spend money on things that reasonably make their lives easier. The point of the matter is that, have a good balance.
Financial literacy is a learning curb; even adults struggle to make financially wise decisions. To break that cycle, teaching your children how to have a healthy relationship with their finances will be something they will thank you for when they’re older. Keep in mind that your teaching style should be encouraging instead of overbearing and that children will make mistakes along the way while they’re learning, and that is normal.